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Sunday, March 28, 2010

Indicators, Indicators every where not a.....

I started thinking about this blog and went and looked at the indicators on FSC. I was blown away there were 70+ of them. Some of them are different forms histograms vs lines If you take out volume and the different forms there are still over 50. That seems like a lot of indicators on just 2 variables price and time. I posted the observation on CIL and lucky me Anchak was there. He is like our YODA of CIL (Incidentally you should visit out CIL it is our TA board where we share and discuss all aspects of the market). Anchak broke down in simple terms as price, change, speed of change and range. Here is how I condensed them.


The one left is acceleration channel. They come in many form essentially you draw a mvg. avg. and draw channels at equal distances from it. Very seldom does price move equidistant above and below the mvg. avg. line. I created my own. One for the highs and one for lows. I maximized the number of points where the top just touches the envelope and another one where the maximum number of points where the bottom touches a second envelope. The way most people play envelopes is they fix the distance ( no maximization) and if price moves outside then buy ; when it comes back in sell; and when price goes below ( to be dramatic - pierces the lower band of the envelopes) sell short and cover when price comes back into the band. I have 2 bands. When price touches the upper line of the top band I check the RSI and PPO if they all agree I sell or sell short. On the down side when it touches the bottom line of the other band I buy after getting confirmation from PPO and RSI. CAUTION If the price moves outside the bands I abandon the trade.

This brings us to the second chart.
RSI is relative s
strength indicator. Quite widely used. With a 14 period. It compares the movement in the nth period to the average movement in (n-1) periods and assigns percentages. It is extremely useful in identifying extreme points. And another very important one I use is PPO. This gives the percent difference between the fast mvg. avg. (smaller number) and slower moving avg ( the larger number). The general theory is when fast moves below slow you sell ( short) and buy when fast crosses the slow to the upside. It is little after the fact I use it to add to my shorts or longs.

There literally 100+ indicators. It is not which indicator you pick that is important what is of higher importance is how well you use them. I will post a couple more another day

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